President Reagan's Economic Policy: Reaganomics Flashcards
Pre-Existing Problems
Unemployement 6.2%
Inflation double figures
Federal debt $73.8 billion
Key Aims
Economic Style
Supply-side economics
Cut taxes, increased profits, increased production, increased profits, expansion repeate
REsponse
Omnibus Reconciliation Act + Economic Recovery Tax (1981)
Cut federal spending by $35bn, cut approx 300 fed programmes
Cut taxes to encourage growth- 2nd Economic Tax Recovery Act cut personal tax by 25%
Deregulate industry
Cutting Social Expenditure
Social Welfare Programmes
Cut spending on over 300 programmes, reduction of $963 bn between 1981-1987
Social spending fell by average 1.5% annually under Reagan
Cutting Social Expenditure
Federal Government
New federalism- reduction in fed gov power
Slashed spending on fed gov departments- Department of Housing and Urban Development budget cut 57% 1981-1987
Cutting Social Expenditure
Taxation
Tax cuts benefitted rich + tax rises hit less affluent hardest
Homelessness increased- 200,000 to 400,000 and average income of poor decreased by $1,300 a year
Cutting Social Expenditure
Analysis
Wanted to reduce inflation, reduce size of fed gov, felt extreme reliance on welfare,
Impact:
Reduced gov spending + debt
Increased unemployment in fed gov
Reduced benefits, so inc. poverty and homelessness
Government Budget and Defence Expenditure
Increased Defence Spending
‘Defence is not a budget album’
By 1983, fed defence spending 23.5% of GDP, fed employees (defence) rose from 2.9 million to 3.1 million (1981 to 1983)
Government Budget and Defence Expenditure
Increased General Spending
Fed spending increased $699.1bn to $859.3bn (1980 to 1987)
Cuts in social spending, but only 17% of federal budget
Budget deficit 5x that of predecessors- Congress passed Balanced Budget and Emergency Deficits Control Act (1985)
Government Budget and Defence Expenditure
Success
5% population, but 25% of goods by 1990
Post 1983, US longest period of economic growth in peace-time
1980 to 1988- Inflation fell 13.5% to 4.%, unemployment fell 7% to 5.2%, 16 million new jobs
Real GNP grew 11% between 1981-4
Government Budget and Defence Expenditure
Debt
Had criticised $1 trillion national debt as ‘mortgaging our future and our children’s future’
But it tripled to more than $2.6 trillion
Huge trade deficit, went from largest creditor nation to largest debtor nation
Government Budget and Defence Expenditure
Foreign Competition
Foreign competition- decline in manufacturing
Persuaded Japanese manufacturers to voluntarily limit exports to USA
Japanese manufacturing plants in America- gave jobs
Government Budget and Defence Expenditure
Analysis
Viewed defence as significant priority for US in Cold War
Impact:
Inc. employment in defence
Excessive spending, more borrowing, increased debt
US retained some economic strength
Taxtation
Tax Reductions
Individual and corporate tax cuts (Economic Recovery Act) stimulated investment and production- benfitted rich over poor
2nd Economic Recovery Tax Act- reduced personal income tax by 25%
Taxation
Tax Increases
Tax rises- ‘revenue enhancement’ - hit poorest hardest
1986- increased taxes on corporations and capital gains, lowered top rate of taxation (50% to 28%) and increased bottom rate of taxation (11% to 15%)
Taxation
Issues
Budget deficit
Incraesed gap between rich + poor:
National income of wealthiest 1% rose from 8% to 15%
Average income of poorest decreased by $1,300 per annum
Homeless people from 200,000 to 400,000
Taxation
Analysis
Wanted to stimulate economic growth
Impact:
Finances depleted
Businesses produced more goods and employ more workers
Poorer Americans experienced decline in income, wealthy increased
Deregulation
General Deregulation + Oil
Large-scale economic deregulation to promote economic growth
Deregulated price of oil in 1981- alongside international price falls reduced inflation
Deregulation
Safety
50% fall in prosecutions for illegal disposal of hazardous waste
Staff of regulatory agencies cut by 25%, Consumer Product Safety Commission cut by 38%
Deregulation
Savings and Loans
Led to risky loans- unsustainable, led to economic crash between 1989-1990
$132 bn of taxpayer money used to bail out savings and loan institutions
Higher status of living short term, future generations damaged
Deregulation
Analysis
Wanted to boost economy, efficiency, and reduce inflation
Impact:
Decreased inflation + high standard of living short term
Safety risk to consumers
Unemployment increased
Economic crash + financial pressure
Trade Unions/Pro Business Policies
Appointments
Appointed pro-business members to National Labor Relations Board
Appointed over 400 conservatives to the judiciary- rulings in late 1980s made it harder to sue over employment discrimination
Trade Unions/Pro Business Policies
Approach to Unions/Strikes
11,300 members of Professional Air Traffic Controllers went on strike in 1981
Reagan demanded they return to work within 48 hours or face the sack
They didn’t so he sacked them all
Emboldened corporations to resist unions- Greyhound Bus Company, Continental Airlines, and Chicago Tribune refused to give in to unions
Trade Unions/Pro Business Policies
Legislative
Opposed minimum wage and obstructed Congressional attempts to increase it
Trade Unions/Pro Business Policies
Analysis
Wanted businesses to maintain support for him + to boost economy
Impact:
Widened rich-poor divide
Inhibited vulnerable groups from advocating for themselves
Reduced power of unions to strike
Reactions From Congress and Public Attitudes
Congress
New philosophy- generally considered unwise to increase spending on social welfare
But his plans not always accepted by Democrat-dominated Congress- accepted 1981 budget, but later one rewritten + lack of cooperation in reducing gov size
Reactions From Congress and Public Attitudes
Public Attitudes
Polling- majority of Americans didn’t want reduction of spending on social programmes (contributed to budget deficit)
Public opposition significant- social security, Medicare, veterans’ beneifts left largely intact along with school lunches and Head Start
